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Diamond producers hopeful prices will defy global economic crisis

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By David Robertson

DIAMOND prices have slumped by about 20 per cent in the past three months amid fears the economic crisis in Europe and the United States could hit the jewellery market.

The price of precious stones hit a record this year amid a shortage of supply and strong demand from emerging economies such as China, but diamond miners say prices have softened and there is uncertainty about the outlook for the rest of the year.
Some analysts fear the possibility of a double-dip recession in Europe and the US could push precious stone prices much lower – they fell by more than half in the last recession.

Analysts at Renaissance Capital said: “August looks to have been poor for diamond pricing and there is a bit of a fingers-crossed attitude to the rest of the year among investors generally.”

However, miners believe strong demand in Asia, growing demand for diamonds as an investment and the lack of a new supply will continue to underpin prices.

Producer Petra Diamonds forecast prices from its Koffiefontein mine would be down 2.6 per cent to $US549 per carat in the coming year.

The price per carat had risen by 40 per cent to $US564 last year, it said.

“There has been some easing in prices and we see greater volatility than we were hoping for in the coming year. But supply is tight so we see prices trading around the current level,” said Petra chief executive Johan Dippenaar.

Petra’s price forecast came as the miner reported its revenues had increased to $US220.6 million in the year to the end of June compared with $US163.7m the year before.

Profits stood at $US67.1m compared with $US70.9m, although the 2010 results were distorted by the one-off sale of the $US35m Cullinan Heritage diamond.

De Beers, the world’s largest diamond producer, said yesterday while prices had fallen recently, it could ultimately benefit from the economic uncertainty.

Diamonds are increasingly being bought as a reserve asset in the same way gold, silver and platinum have attracted investment buyers during the economic crisis.

Varda Shine, the chief executive, said: “Yes, there is nervousness out there but I don’t think diamonds are necessarily going to do badly.”

“In the next few years we won’t see as aggressive price growth as we have seen in the last two years, but we still believe that prices are going to continue growing over the next five to ten years.”